Takeaways on Estate Planning Trends from Heckerling Institute

I spent the week of January 24 at the 53rdAnnual Heckerling Institute on Estate Planning provided by the University of Miami School of Law. As always, it was a week full of exceptional speakers with even better thoughts and ideas. Yes, this is what I do for fun while in Florida!

There were a number of lines of thinking brought up and, as I told one colleague, if I were given three uninterrupted weeks to review the materials I still wouldn’t get through them all. Here are a few of my memorable takeaways on things like donor advised funds and federal exemption impacts:

For the majority of Americans, your estate planning has turned into basis planning: how can you pass your assets on to the next generation with the highest possible tax basis to mitigate future capital gains? One of the interesting methods would be granting an individual of the older generation a limited power of appointment over assets, thereby making that asset includible in their estate. The positive of this method is that there is not a time constraint; you can grant the power close to the older generation passing. The negative of this is that the person can appoint the property to whomever they desire (you have to be nice to Aunt Sally after you give her this power).

Charitable bequests in your will:

Since many of our estates consist of retirement plans, it becomes important to make sure that charitable bequests are paid out of assets that are taxed as ordinary income, if you have them. Drafted correctly, this can result in a deduction both for estate tax purposes and estate income tax purposes.

Leaving your estate charitable contribution to a donor advised fund (DAF) can help with making sure your current wishes are carried out. You can change the beneficiary on your DAF at any time relatively easily. If you specify your charities in your will, changing your charitable beneficiary requires changing your will. Some of the DAFs allow you to set them up without funding them, as long as they know it will be a conduit for your will (e.g. Fidelity, a sponsor at Heckerling, does allow for this).

Revisiting your estate plan has become more and more important. For example, formula bequests that in the past would carry out the wishes of the decedent may no longer do so. When the estate tax exemption was $2 million you may have created a formula in your will leaving the estate tax exemption to your credit shelter trust and the balance to your spouse. Having a $4 million estate would mean that this left 50% to your spouse and 50% to your trust. With todays $11.4 million exemption this formula would leave all of your estate to your trust. Your spouse will not have access to these assets, which of course was not the intent of the planning.

One other area that had a decent amount of time spent on it was “Section 1202 Small Business Stock.” Although this doesn’t apply to many companies, it is extremely powerful to those to whom it does apply. The code section allows for no tax on the sale of qualified small business stock, which it defines as original issue stock of a C Corporation issued after August 10, 1993, with tax basis of gross assets at all times under $50 million. There are opportunities to do tax-free merger transactions to establish original issue stock that—once held for five years—would qualify for this exemption from taxation.This is extremely sophisticated and sometimes expensive planning, but in the right circumstances is worth it.

As I said, this is only a very select summary of the important things discussed at Heckerling, and there will be many more weeks taken to digest as much as is possible.